Penang projects may not be strong construction catalyst

The outlook remains uncertain in the local construction sector. As the government works to reduce spending, mega projects are being reviewed and Penang's project may not be able to create excitement in the segment, say analysts quoted by The Edge Malaysia. 

Buildmarque Construction Sdn Bhd (wholly-owned by Vertice Bhd) was awarded an RM815 million contract from Consortium Zenith Construction Sdn Bhd earlier this month. The contract was for a 5.7km bypass road, from Bandar Baru Air Itam, to the Tun Dr Lim Chong Eu expressway. 

Another two roadworks projects have yet to be awarded. These are a 10.5km bypass from Tanjung Bungah to Teluk Bahang and a 4.1km bypass from Gurney Drive to Tun Dr Lim Chong Eu expressway. 

The three packages, under Consortium Zenith's RM6.3 billion integrated infrastructure project includes the plan to connect Penang Island to the mainland.

There is also the Penang Transport Master Plan (PTMP), with Gamuda Bhd as project delivery partner (PDP), comprising a light rail transit project and the 20km Pan Island Link 1 (PIL 1). 

The publication quotes Affin Hwang Capital Research analyst Loong Chee Wei, who expects the PTMP to get the go-ahead, following the change in government. 

"In the long term, it would be a catalyst. But at this point, I think they are still getting the approvals for projects under the PTMP. For now, it seems that it  is more likely to go through, given the change in government. 

"Gamuda is the big beneficiary of this, being the PDP. Other contractors that have been active in Penang, like IJM Corp Bhd, could benefit too," he said. 

Other potential benefactors, according to Loong, is companies like WCT Holdings Bhd and Sunway Construction Group Bhd, from the LRT portion of the project, as they have been involved in railway projects in the past.

The publication also quotes JF Apex Securities analyst Low Zy Jing, who expects the PTMP to be approved as well, and also says it is a positive for Gamuda.

However, he points to the lack of excitement in Gamuda's share price as being indicative of investors having already priced in the outcome. 

Gamuda has dropped 34% since the election, from RM5.10 to Friday's closing of RM3.30, with a market capitalisation of RM8.15 billion.

"Right now, there are fewer jobs out there, while the competition has increased. There are more players now fighting for a smaller number of job," said Low. 

But there is controversy surrounding the PTMP, due to environmental and traffic concerns that have seen protests calling for the scrapping of the highway project. 

"The PTMP will take some time, and I doubt they will roll out the projects so soon, I think. Personally, I'm not too bullish on the PIL 1 project, and I doubt the government will roll out anything this year," said an analyst quoted by The Edge, who requested anonymity. 

The uncertainty that arose after the general election has affected the construction sector, he said, citing the review of the Kuala Lumpur-Singapore high-speed rail (HSR), Mass Rapid Transit 3 (MRT3), and the East Coast Railway Link (ECRL).

"We definitely need more clarity on the mega projects and the works in Penang. Hopefully, with the budget announcement, there will be some guidance on the direction that the government wants to take," he adds.

The analyst said that he prefers larger cap construction players, with Gamuda as his top pick, due to the stocks reasonable price-earnings valuation of about 11 times and its strong track record. 

Loong of Affin Hwang was quoted by the publication as saying that he is still neutral on the construction sector, preferring to wait for further details on the government's plans for cost cutting.

"We don't expect big infrastructure spending as with the previous government, which had raised concerns over sustainability.

"In the past, many projects were awarded on a negotiated basis that previously went to private companies or politically-linked firms, Now that the government is moving towards open tenders, competitive contractors like IJM Corp and Sunway Construction should do well," he said.